10-Q 1 lmos-20120930x10q.htm 10-Q 4db7a8b7df504eb

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,  D.C. 20549


FORM 10Q


(Mark One)

[X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

[   ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to ____________________.

Commission File Number:  000-35180


Lumos Networks Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 

(State or other jurisdiction of incorporation or organization)

80-0697274

(I.R.S. Employer Identification No.)

 

One Lumos Plaza, Waynesboro, Virginia 22980

(Address of principal executive offices) (Zip Code)

 

(540) 946-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

Name of each exchange on which registered

Common stock, $0.01 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   [ X ]  Yes   [ ]  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X]  Yes   [ ]  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

Large accelerated filer  [ ]

Accelerated filer [ ]

Non-accelerated filer [X]

Smaller reporting company [ ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes  [X] No

There were 21,484,404 shares of the registrant’s common stock outstanding as of the close of business on October 29, 2012.

 


 

LUMOS NETWORKS CORP.
2012 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

Part I – FINANCIAL INFORMATION

 

 

PART II – OTHER INFORMATION

 

 

Signatures 

 

 

 

1


 

Part I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

Condensed Consolidated Balance Sheets

Lumos Networks Corp

(Unaudited)

 

 

 

 

 

 

 

 

 

 

(In thousands)

September 30, 2012

 

December 31, 2011

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash

$

 

$

10,547 

Restricted cash

 

6,750 

 

 

7,554 

Accounts receivable, net of allowance of $3,351 ($2,822 in 2011)

 

22,609 

 

 

23,555 

Other receivables

 

3,357 

 

 

2,390 

Prepaid expenses and other

 

3,095 

 

 

2,278 

Total Current Assets

 

35,813 

 

 

46,324 

 

 

 

 

 

 

Securities and Investments

 

382 

 

 

128 

 

 

 

 

 

 

Property, Plant and Equipment

 

 

 

 

 

Land and buildings

 

22,116 

 

 

22,833 

Network plant and equipment

 

392,455 

 

 

365,101 

Furniture, fixtures and other equipment

 

17,086 

 

 

13,069 

Total in service

 

431,657 

 

 

401,003 

Under construction

 

31,883 

 

 

18,200 

 

 

 

 

 

 

 

 

463,540 

 

 

419,203 

Less accumulated depreciation

 

138,442 

 

 

119,245 

 

 

 

 

 

 

Total Property, Plant and Equipment, net

 

325,098 

 

 

299,958 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

Goodwill

 

100,297 

 

 

100,297 

Other intangibles, less accumulated amortization of $70,092 ($61,742 in 2011)

 

37,679 

 

 

45,696 

Deferred charges and other assets

 

5,167 

 

 

6,197 

Total Other Assets

 

143,143 

 

 

152,190 

 

 

 

 

 

 

Total Assets

$

504,436 

 

$

498,600 

 

 

 

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

2

 


 

Condensed Consolidated Balance Sheets

Lumos Networks Corp.

(Unaudited)

 

 

 

 

 

 

 

 

 

(In thousands, except par value per share amounts)

September 30, 2012

 

December 31, 2011

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Current portion of long-term debt

$

6,781 

 

$

2,679 

Accounts payable

 

12,217 

 

 

12,432 

Dividends payable

 

3,006 

 

 

2,980 

Advance billings and customer deposits

 

13,210 

 

 

12,623 

Accrued compensation

 

1,958 

 

 

2,832 

Accrued operating taxes

 

4,384 

 

 

2,624 

Other accrued liabilities

 

4,039 

 

 

3,262 

Total Current Liabilities

 

45,595 

 

 

39,432 

 

 

 

 

 

 

Long-term Liabilities

 

 

 

 

 

Long-term debt

 

307,597 

 

 

323,897 

Retirement benefits

 

35,066 

 

 

35,728 

Deferred income taxes

 

50,685 

 

 

41,204 

Other long-term liabilities

 

2,574 

 

 

5,028 

Income tax payable

 

645 

 

 

484 

 

 

 

 

 

 

Total Long-term Liabilities

 

396,567 

 

 

406,341 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Preferred stock, par value $0.01 per share, authorized 100 shares, none issued

 

 -

 

 

 -

Common stock, par value $0.01 per share, authorized 55,000 shares; 21,590 shares issued and 21,482 shares outstanding (21,235 shares issued and 21,170 shares outstanding in 2011)

 

216 

 

 

212 

Additional paid in capital

 

129,541 

 

 

126,427 

Treasury stock, 108 shares at cost (65 shares in 2011)

 

 -

 

 

 -

Accumulated deficit

 

(51,983)

 

 

(57,416)

Accumulated other comprehensive loss

 

(16,024)

 

 

(16,840)

Total Lumos Networks Corp. Stockholders' Equity

 

61,750 

 

 

52,383 

Noncontrolling Interests

 

524 

 

 

444 

 

 

 

 

 

 

Total Equity

 

62,274 

 

 

52,827 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity

$

504,436 

 

$

498,600 

 

 

 

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

3

 


 

Condensed Consolidated Statements of Operations

Lumos Networks Corp.

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(In thousands, except per share amounts)

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$

51,977 

 

$

51,601 

 

$

154,192 

 

$

156,307 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of sales and services (exclusive of items shown separately below)

 

20,180 

 

 

19,479 

 

 

59,919 

 

 

58,901 

Customer operations

 

5,885 

 

 

4,661 

 

 

16,446 

 

 

14,778 

Corporate operations

 

5,216 

 

 

3,588 

 

 

18,447 

 

 

10,908 

Depreciation and amortization

 

9,650 

 

 

10,904 

 

 

27,673 

 

 

32,903 

Accretion of asset retirement obligations

 

32 

 

 

30 

 

 

93 

 

 

86 

Gain on settlements, net

 

(2,335)

 

 

 -

 

 

(2,335)

 

 

 -

Total Operating Expenses, net

 

38,628 

 

 

38,662 

 

 

120,243 

 

 

117,576 

Operating Income

 

13,349 

 

 

12,939 

 

 

33,949 

 

 

38,731 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,064)

 

 

(2,559)

 

 

(8,980)

 

 

(8,840)

Loss on interest rate derivatives

 

(263)

 

 

 -

 

 

(555)

 

 

 -

Other income, net

 

24 

 

 

66 

 

 

55 

 

 

73 

Total Other Expenses, net

 

(3,303)

 

 

(2,493)

 

 

(9,480)

 

 

(8,767)

Income Before Income Tax Expense

 

10,046 

 

 

10,446 

 

 

24,469 

 

 

29,964 

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Expense

 

3,589 

 

 

4,249 

 

 

9,985 

 

 

12,144 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

6,457 

 

 

6,197 

 

 

14,484 

 

 

17,820 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to Noncontrolling Interests

 

(115)

 

 

(2)

 

 

(80)

 

 

(87)

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to Lumos Networks Corp.

$

6,342 

 

$

6,195 

 

$

14,404 

 

$

17,733 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Common Share Attributable to Lumos Networks Corp. Stockholders:

Income per share-basic

$

0.30 

 

 

 

 

$

0.69 

 

 

 

Income per share-diluted

$

0.30 

 

 

 

 

$

0.67 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

20,992 

 

 

 

 

 

20,928 

 

 

 

Weighted average shares outstanding - diluted

 

21,471 

 

 

 

 

 

21,374 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared per Share - Common Stock

$

0.14 

 

 

 

 

$

0.42 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

4

 


 

Condensed Consolidated Statements of Comprehensive Income

Lumos Networks Corp.

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(In thousands)

2012

 

2011

 

2012

 

2011

Net income

$

6,457 

 

$

6,197 

 

$

14,484 

 

$

17,820 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of unrealized loss from defined benefit plans included in net income, net of $173 and $520 of deferred tax asset for the three and nine months ended September 30, 2012

 

272 

 

 

 -

 

 

816 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

272 

 

 

 -

 

 

816 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

6,729 

 

 

6,197 

 

 

15,300 

 

 

17,820 

 

 

 

 

 

 

 

 

 

 

 

 

Less:  comprehensive income attributable to noncontrolling interests

 

(115)

 

 

(2)

 

 

(80)

 

 

(87)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Lumos Networks Corp.

$

6,614 

 

$

6,195 

 

$

15,220 

 

$

17,733 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

 

 

5


 

Condensed Consolidated Statements of Cash Flows

Lumos Networks Corp. 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

(In thousands)

2012

 

2011

Cash flows from operating activities

 

 

 

 

 

Net income

$

14,484 

 

$

17,820 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

19,323 

 

 

21,046 

Amortization

 

8,350 

 

 

11,857 

Accretion of asset retirement obligations

 

93 

 

 

86 

Deferred income taxes

 

9,122 

 

 

7,938 

Loss on interest rate swap derivatives

 

555 

 

 

 -

Equity-based compensation expense

 

2,887 

 

 

2,146 

Amortization of loan origination costs

 

606 

 

 

 -

Gain on settlement

 

(3,035)

 

 

 -

Retirement benefits and other

 

2,774 

 

 

(2,593)

Changes in assets and liabilities from operations:

 

 

 

 

 

Decrease in accounts receivable

 

897 

 

 

403 

Increase in other current assets

 

(1,758)

 

 

(187)

Changes in income taxes

 

137 

 

 

(31)

Increase (decrease) in accounts payable

 

254 

 

 

(1,453)

Increase in other current liabilities

 

2,167 

 

 

1,617 

Retirement benefit contributions and distributions

 

(2,654)

 

 

 -

Net cash provided by operating activities

 

54,202 

 

 

58,649 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property, plant and equipment

 

(43,925)

 

 

(48,814)

Return of investment in restricted cash

 

804 

 

 

 -

Cash reimbursement received from government grant

 

804 

 

 

 -

Purchase of tradename asset

 

(333)

 

 

 -

Other

 

(868)

 

 

(1,293)

Net cash used in investing activities

 

(43,518)

 

 

(50,107)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Borrowings from NTELOS Inc. net

 

 -

 

 

6,401 

Repayments on senior secured term loans

 

(1,500)

 

 

 -

Repayments on revolving credit facility, net

 

(10,283)

 

 

 -

Cash dividends paid on common stock

 

(8,945)

 

 

 -

Dividends paid to NTELOS Inc.

 

 -

 

 

(14,145)

Payments under capital lease obligations

 

(604)

 

 

(839)

Other

 

103 

 

 

 -

Net cash used in financing activities

 

(21,229)

 

 

(8,583)

Decrease in cash

 

(10,545)

 

 

(41)

Cash:

 

 

 

 

 

Beginning of period

 

10,547 

 

 

489 

 

 

 

 

 

 

End of period

$

 

$

448 

 

 

 

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

See accompanying

6

 


 

 

Notes to Unaudited Condensed Consolidated Financial Statements 

Lumos Networks Corp.

 

Note 1.  Organization

On October 14, 2011, NTELOS Holdings Corp. (“NTELOS”) announced a distribution date of October 31, 2011 for the spin-off of all of the issued and outstanding shares of common stock of Lumos Networks, which operated NTELOS’s wireline operations (the “Business Separation”).  Prior to and in connection with the Business Separation, following the market close on October 31, 2011, NTELOS effectuated a 1-for-2 reverse stock split (the “Reverse Stock Split”) of its shares of Common Stock, $0.01 par value.  The spin-off of Lumos Networks was in the form of a tax-free stock distribution to NTELOS stockholders of record as of the close of business on October 24, 2011, the record date (the “Distribution”).  On October 31, 2011, NTELOS distributed one share of Lumos Networks common stock for every share of NTELOS’s common stock outstanding, on a post-Reverse Stock Split basis. 

Lumos Networks is a fiber-based network service provider in the Mid-Atlantic region supported by an extensive fiber optic network in western Virginia, West Virginia, and portions of Pennsylvania, Maryland, Ohio and Kentucky.  The Company serves carrier, business and residential customers over a dense fiber network offering data, voice, and IP services using an on-network service strategy.  The Company’s product offering includes high-speed transport, private line and wavelength high-bandwidth services and voice services.  The Company’s bandwidth services provide a means to efficiently utilize fiber in broadband applications and provide high-capacity bandwidth, such as Metro Ethernet, which provides Ethernet connectivity among multiple locations in the same city or region over the Company’s fiber optic network.  The Company’s position as a regional service provider has been achieved by pursuing organic growth opportunities in existing and new contiguous markets strategic to the Company and through complementary acquisitions.

 

Note 2Relationship with NTELOS

In connection with the Business Separation, the Company entered into a series of agreements with NTELOS which are intended to govern the relationship between the Company and NTELOS going forward.  These agreements include commercial service agreements, a separation and distribution agreement, an employee matters agreement, a tax matters agreement, intellectual property agreements and a transition services agreement.  During the three and nine months ended September 30, 2012, the net expense to the Company related to the transition services agreement was $0.5 million and $1.4 million, respectively.    Services under the transition services agreement after 2012 will be limited to certain non-strategic information technology functions and facility rent.

 

Note 3.  Significant Accounting Policies

In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2012 and for the three and nine months ended September 30, 2011 contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2012, and the results of operations and cash flows for all periods presented on the respective financial statements included herein.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.  The accompanying condensed consolidated balance sheet as of December 31, 2011 has been derived from the audited financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Additionally, the financial information for 2011 included herein is not reflective of what the Company’s financial position, results of operations and cash flows would have been had Lumos Networks been an independent, publicly traded company prior to the Business Separation on October 31, 2011. 

7


 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, Lumos Networks Operating Company, a wholly-owned subsidiary of the Company, and all of Lumos Networks Operating Company’s wholly-owned subsidiaries and those limited liability corporations where Lumos Networks Operating Company or certain of its subsidiaries, as managing member, exercises control.  All significant intercompany accounts and transactions have been eliminated.

For all periods prior to the Business Separation on October 31, 2011, the consolidated financial statements principally represent the financial results reflected by NTELOS constituting the companies comprising the Competitive and RLEC wireline segments.  These financial results as of and for the periods prior to the date of the Business Separation have been adjusted to reflect certain corporate expenses which were not previously allocated to the segments.  These allocations primarily represent corporate support functions, including but not limited to accounting, human resources, information technology and executive management, as well as corporate legal and professional fees, including audit fees, and equity-based compensation expense related to equity-based awards granted to employees in corporate support functions and executive management.  These additional expenses for the three and nine months ended September 30, 2011 were $0.8 million and $2.3 million, respectively.  The Company believes that these costs would not have been materially different had they been calculated on a standalone basis.  However, such costs are not indicative of the actual level of expense and exclude certain expenses that would have been incurred by the Company if it had operated as an independent, publicly traded company nor are they comparable to the expenses incurred in 2012.   

Cash and Cash Equivalents

The Company considers its investment in all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.  The Company places its temporary cash investments with high credit quality financial institutions with a maturity date of not greater than 90 days from acquisition and all are investments held by commercial banks.  At times, such investments may be in excess of the FDIC insurance limit.  The commercial bank that holds significantly all of the Company’s cash at September 30, 2012 has maintained a high rating by Standard & Poor’s and Moody’s.  At September 30, 2012 and December 31, 2011, the Company did not have any cash equivalents.  As of September 30, 2012, all of the Company’s cash was held in non-interest bearing deposit accounts which are fully insured by the FDIC.  Total interest income related to cash was negligible for the three and nine months ended September 30, 2012 and 2011.

The Company utilizes a zero balance arrangement for its master cash account against a swingline facility that the Company has with its primary commercial bank.  As of September 30, 2012, the Company reclassified its book overdraft related to this master cash account of $2.3 million to Accounts Payable on the condensed consolidated balance sheet.  The Company has classified this overdraft in cash flows from operating activities on the condensed consolidated statement of cash flows for the nine months ended September 30, 2012.

Restricted Cash

During 2010, the Company received a federal broadband stimulus award to bring broadband services and infrastructure to Alleghany County, Virginia.  The total project is $16.1 million, of which 50% (approximately $8 million) is being funded by a grant from the federal government.  The project is expected to be completed in or before 2015.  The Company was required to deposit 100% of its portion for the grant (approximately $8 million) into a pledged account in advance of any reimbursements, which can be drawn down ratably following the grant reimbursement approvals which are contingent on adherence to the program requirements.  The Company did not receive any reimbursement during the three months ended September 30, 2012 but did receive $0.8 million during the nine months ended September 30, 2012 for the reimbursable portion of the qualified recoverable expenditures, and the Company has a $3.0 million receivable for the reimbursable portion of the qualified recoverable expenditures as of September 30, 2012.  At September 30, 2012, the Company’s pledged account balance was  $6.8 million.  This escrow account is a  non-interest bearing, fully insured account with its primary commercial bank. 

Trade Accounts Receivable

The Company sells its services to commercial end-users and to other communication carriers primarily in Virginia, West Virginia and in parts of Maryland, Pennsylvania, Ohio and Kentucky and to residential end users in the Company’s RLEC service areas of Virginia.  The Company has credit and collection policies to maximize collection of trade receivables and requires deposits on certain sales.  The Company maintains an allowance for doubtful accounts based on historical results, current and expected trends and changes in credit policies.  Management believes the allowance adequately covers all anticipated losses with respect to trade receivables.  Actual credit losses

8


 

could differ from such estimates.  The Company includes bad debt expense in customer operations expense in the condensed consolidated statements of operations.  Bad debt expense for the three months ended September 30, 2012 and 2011 was $0.2 million and $0.1 million, respectively, and bad debt expense for the nine months ended September 30, 2012 and 2011 was $0.3 million and $0.7 million, respectively.  The Company’s allowance for doubtful accounts was $3.4 million and $2.8 million as of September 30, 2012 and December 31, 2011, respectively.

The following table presents a roll forward of the Company’s allowance for doubtful accounts from December 31, 2011 to September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions

 

 

 

 

Description

December 31, 2011

Charged to Expense

Charged to Other Accounts

Deductions

September 30, 2012

(In thousands)

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

$

2,822 

$

285 

$

299 

$

(55)

$

3,351 

 

Property, Plant and Equipment and Other Long-Lived Assets

Long-lived assets include property, plant and equipment, long-term deferred charges, goodwill and intangible assets to be held and used.  Long-lived assets, excluding goodwill and intangible assets with indefinite useful lives, are recorded at cost and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be evaluated pursuant to the subsequent measurement guidance described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35.  Impairment is determined by comparing the carrying value of these long-lived assets to management’s best estimate of future undiscounted cash flows expected to result from the use of the assets.  If the carrying value exceeds the estimated undiscounted cash flows, the excess of the asset’s carrying value over the estimated fair value of those assets is recorded as an impairment charge.  The Company believes that no impairment indicators exist as of September 30, 2012 that would require it to perform impairment testing.

Goodwill is an indefinite-lived intangible asset.  Indefinite-lived intangible assets are not subject to amortization but are instead tested for impairment annually or more frequently if an event indicates that the asset might be impaired.  The Company’s policy is to assess the recoverability of indefinite-lived assets annually on October 1 and whenever adverse events or changes in circumstances indicate that impairment may have occurred.    The Company uses a two-step process to test for goodwill impairment.  Step one requires a determination of the fair value of each of the reporting units and, to the extent that this fair value of the reporting unit exceeds its carrying value (including goodwill), the step two calculation of implied fair value of goodwill is not required and no impairment loss is recognized.  In testing for goodwill impairment, the Company utilizes a combination of a discounted cash flow model and an analysis which allocates enterprise value to the reporting units.  The Company believes there have been no events or circumstances to cause management to evaluate the carrying amount of its goodwill during the three or nine months ended September 30, 2012.

Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated useful lives of the assets, which the Company reviews and updates based on historical experiences and future expectations.

Intangibles with a finite life are classified as other intangibles on the consolidated balance sheets.  The Company amortizes its finite-lived intangible assets using the straight-line method unless it determines that another systematic method is more appropriate.  The FiberNet customer relationship intangible asset is being amortized using an accelerated amortization method based on the pattern of estimated earnings from these assets. At September 30, 2012 and December 31, 2011, other intangibles were comprised of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

December 31, 2011

(Dollars in thousands)

Estimated Life

 

Gross Amount

 

Accumulated Amortization

 

Gross Amount

 

Accumulated Amortization

Customer relationships

3 to 15 yrs

 

$

103,153 

 

$

(67,122)

 

$

103,153 

 

$

(59,286)

Trademarks

0.5 to 15 yrs

 

 

3,518 

 

 

(2,002)

 

 

3,186 

 

 

(1,884)

Non-compete agreement

2 yrs

 

 

1,100 

 

 

(968)

 

 

1,100 

 

 

(572)

Total

 

 

$

107,771 

 

$

(70,092)

 

$

107,439 

 

$

(61,742)

9


 

 

During the nine months ended September 30, 2012, the Company capitalized costs of $0.3 million related to the development and registration of the “Lumos Networks” tradename.  The term of the registration is ten years and it may be renewed for additional ten-year terms.  The Company determined that the Lumos Networks tradename should be categorized as an indefinite-lived intangible asset.  This asset is contained within the line item “Other intangibles, less accumulated amortization” on the condensed consolidated balance sheet.

The estimated life of amortizable intangible assets is determined from the unique factors specific to each asset and the Company reviews and updates estimated lives based on current events and future expectations.  The Company capitalizes costs incurred to renew or extend the term of a recognized intangible asset and amortizes such costs over the remaining life of the asset. No such costs were incurred during the three or nine months ended September 30, 2012 or 2011Amortization expense for the three months ended September 30, 2012 and 2011 was $2.8 million and $3.8 million, respectively, and amortization expense for the nine months ended September 30, 2012 and 2011 was $8.3 million and $11.9 million, respectively.

Amortization expense for the remainder of 2012 and for the next five years is expected to be as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Customer Relationships

 

Trademarks

 

Non-Compete

 

Total

Remainder of 2012

 

$

2,612 

 

$

40 

 

$

132 

 

$

2,784 

2013

 

 

9,665 

 

 

159 

 

 

 -

 

 

9,824 

2014

 

 

9,028 

 

 

159 

 

 

 -

 

 

9,187 

2015

 

 

4,648 

 

 

159 

 

 

 -

 

 

4,807 

2016

 

 

2,416 

 

 

159 

 

 

 -

 

 

2,575 

2017

 

$

2,097 

 

$

159 

 

$

 -

 

$

2,256 

 

Pension Benefits and Retirement Benefits Other Than Pensions

Prior to the Business Separation, Lumos Networks participated in several qualified and nonqualified pension plans and other postretirement benefit plans (“OPEBs”) sponsored by NTELOS Inc.  On the effective date of the Business Separation, Lumos Networks assumed its portion of the assets and liabilities for these pension benefits and OPEBs.  Lumos Networks sponsors a non-contributory defined benefit pension plan (“Pension Plan”) covering all employees who meet eligibility requirements and were employed by NTELOS prior to October 1, 2003.  The Pension Plan was closed to NTELOS employees hired on or after October 1, 2003.  Pension benefits vest after five years of plan service and are based on years of service and an average of the five highest consecutive years of compensation subject to certain reductions if the employee retires before reaching age 65 and elects to receive the benefit prior to age 65.

For the three and nine months ended September 30, 2012, the components of the Company’s net periodic benefit cost for its Defined Benefit Pension Plan were as follows: 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended September 30, 2012

 

Nine Months Ended September 30, 2012

Service cost

$

511 

 

$

1,532 

Interest cost

 

674 

 

 

2,024 

Expected return on plan assets

 

(879)

 

 

(2,638)

Amortization of loss

 

370 

 

 

1,112 

Net periodic benefit cost

$

676 

 

$

2,030 

Pension plan assets were valued at $50.6 million at September 30, 2012, which included funding contributions in the first quarter of 2012 of $2.0 million, and $45.1 million at December 31, 2011.

10


 

For the three and nine months ended September 30, 2012, the components of the Company’s net periodic benefit cost for its Other Postretirement Benefit Plans were as follows:

 

 

 

 

 

 

 

(In thousands)

Three Months Ended September 30, 2012

 

Nine Months Ended September 30, 2012

Service cost

$

20 

 

$

59 

Interest cost

 

131 

 

 

394 

Net periodic benefit cost

$

151 

 

$

453 

The Company received an allocated portion of the total benefits expenses for the plans discussed above from NTELOS Inc. during the periods prior to the Business Separation.  The total allocated expense for the three and nine months ended September 30, 2011 for these plans was  $0.6 million and $1.7 million, respectively

The total expense recognized for the Company’s nonqualified pension plans for the three months ended September 30, 2012 was $0.2 million, and $0.1 million of this expense relates to the amortization of actuarial loss.  The total expense recognized for the Company’s nonqualified pension plans for the nine months ended September 30, 2012 was $0.6 million, and $0.2 million of this expense relates to the amortization of actuarial loss.   

Equity-based Compensation

The Company accounts for share-based employee compensation plans under FASB ASC 718, Stock Compensation.  Equity-based compensation expense from share-based equity awards is recorded with an offsetting increase to additional paid-in capital on the consolidated balance sheet.  For equity awards with only service conditions, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award.

Equity awards prior to the Business Separation were granted in NTELOS stock instruments and the related expense was allocated to the Company.  Unvested NTELOS stock instruments were converted to commensurate Lumos Networks stock instruments in connection with and at the time of the Business Separation.  The fair value of the common stock options granted during the three and nine months ended September 30, 2012 and 2011 was estimated at the respective measurement date using the Black-Scholes option-pricing model with assumptions related to risk-free interest rate, expected volatility, dividend yield and expected terms.

Total equity-based compensation expense related to all of the share-based awards for the three and nine months ended September 30, 2012 and 2011 (Note 9) and the Company’s 401(k) matching contributions was allocated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(In thousands)

 

2012

 

 

2011

 

 

2012

 

 

2011

Cost of sales and services

$

171 

 

$

99 

 

$

491 

 

$

295 

Customer operations

 

196 

 

 

114 

 

 

528 

 

 

350 

Corporate operations

 

732 

 

 

571 

 

 

1,868 

 

 

1,501 

Equity-based compensation expense

$

1,099 

 

$

784 

 

$

2,887 

 

$

2,146 

Future charges for equity-based compensation related to instruments outstanding at September 30, 2012 for the remainder of 2012 and for the years 2013 through 2017 are estimated to be $0.7 million, $2.0 million, $1.1 million, $0.6 million, $0.1 million and less than $0.1 million, respectively.

Recent Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220):  Presentation of Comprehensive Income.  This ASU increases the prominence of other comprehensive income in financial statements.  Under this ASU, an entity has the option to present the components of net income and comprehensive income in either one or two consecutive financial statements.  The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity.  An entity should apply this ASU retrospectively.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The Company has complied with the requirements of this pronouncement by providing a condensed consolidated statement of comprehensive income, which follows the condensed consolidated statement of operations in this quarterly report on Form 10-Q.      

11


 

 

 

Note 4.  Disclosures About Segments of an Enterprise and Related Information

The Company manages its business with separate products and services in two segments:  Competitive and Rural Local Exchange Carrier (“RLEC”). 

Revenues from Verizon accounted for approximately 11% and 9% of the Company’s total revenue for the three months ended September 30, 2012 and 2011, respectively, and accounted for approximately 10% and 9% of the Company’s total revenue for the nine months ended September 30, 2012 and 2011, respectively.  Revenue from Verizon was derived from RLEC and Competitive segments’ network access.   

Summarized financial information concerning the Company’s reportable segments is shown in the following table. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Competitive

 

RLEC

 

Eliminations

 

Total

For the three months ended September 30, 2012

Operating Revenues

 

$

39,778 

 

$

12,199 

 

$

 -

 

$

51,977 

Intersegment Revenues(1)

 

 

237 

 

 

1,224 

 

 

(1,461)

 

 

 -

Depreciation & Amortization

 

 

6,803 

 

 

2,847 

 

 

 -

 

 

9,650 

Accretion of asset retirement obligations

 

 

25 

 

 

 

 

 -

 

 

32 

Amortization of actuarial losses

 

 

335 

 

 

111 

 

 

 -

 

 

446 

Equity-based compensation charges

 

 

814 

 

 

285 

 

 

 -

 

 

1,099 

Employee separation charges(2)

 

 

30 

 

 

10 

 

 

 -

 

 

40 

Gain on settlements, net(3)

 

 

(1,750)

 

 

(585)

 

 

 -

 

 

(2,335)

Operating Income

 

$

8,183 

 

$

5,166 

 

$

 -

 

$

13,349 

 

As of and for the nine months ended September 30, 2012

Operating revenues

 

$

117,662 

 

$

36,530 

 

$

 -

 

$

154,192 

Intersegment revenues(1)

 

 

716 

 

 

3,642 

 

 

(4,358)

 

 

 -

Depreciation and amortization

 

 

19,220 

 

 

8,453 

 

 

 -

 

 

27,673 

Accretion of asset retirement obligations

 

 

73 

 

 

20 

 

 

 -

 

 

93 

Amortization of actuarial losses

 

 

1,002 

 

 

334 

 

 

 -

 

 

1,336 

Equity-based compensation expense

 

 

2,136 

 

 

751 

 

 

 -

 

 

2,887 

Employee separation charges(2)

 

 

1,556 

 

 

519 

 

 

 -

 

 

2,075 

Gain on settlements, net(3)

 

 

(1,750)

 

 

(585)

 

 

 -

 

 

(2,335)

Operating income

 

 

20,829 

 

 

13,120 

 

 

 -

 

 

33,949 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

38,750 

 

 

5,175 

 

 

 -

 

 

43,925 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

100,297 

 

 

 -

 

 

 -

 

 

100,297 

Total assets

 

$

387,500 

 

$

116,936 

 

$

 -

 

$

504,436 

 

12


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Competitive

 

RLEC

 

Eliminations

 

Total

For the three months ended September 30, 2011

Operating revenues

 

$

38,494 

 

$

13,107 

 

$

 -

 

$

51,601 

Intersegment revenues(1)

 

 

114 

 

 

1,041 

 

 

(1,155)

 

 

 -

Depreciation and amortization

 

 

7,375 

 

 

3,529 

 

 

 -

 

 

10,904 

Accretion of asset retirement obligations

 

 

23 

 

 

 

 

 -

 

 

30 

Equity-based compensation expense

 

 

472 

 

 

312 

 

 

 -

 

 

784 

Operating income

 

 

7,870 

 

 

5,069 

 

 

 -

 

 

12,939 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2011

Operating revenues

 

$

115,356 

 

$

40,951 

 

$

 -

 

$

156,307 

Intersegment revenues(1)

 

 

796 

 

 

3,163 

 

 

(3,959)

 

 

 -

Depreciation and amortization

 

 

22,315 

 

 

10,588 

 

 

 -

 

 

32,903 

Accretion of asset retirement obligations

 

 

68 

 

 

18 

 

 

 -

 

 

86 

Equity-based compensation expense

 

 

1,288 

 

 

858 

 

 

 -

 

 

2,146 

Operating income

 

 

21,937 

 

 

16,794 

 

 

 -

 

 

38,731 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

38,388 

 

$

10,426 

 

$

 -

 

$

48,814 

 

(1)

Intersegment revenues consist primarily of telecommunications services such as local exchange services, inter-city and local transport voice and data services, and leasing of various network elements.  Intersegment revenues are primarily recorded at tariff and prevailing market rates.

(2)

In the second quarter of 2012, the Company recorded charges of $2.0 million related to the recognition of employee separation benefits which were provided for in the separation agreement of an executive officer who left the Company in April 2012.  These charges are in included in corporate operations expense on the condensed consolidated statement of operations.

(3)

The Company recognized a net pre-tax gain of approximately $2.3 million in the third quarter of 2012 in connection with the settlement of outstanding matters related to a prior acquisition and the settlement of an outstanding lawsuit (Note 11).

 

 

 

Note 5.  Long-Term Debt

As of September 30, 2012 and December 31, 2011, the Company’s outstanding long-term debt consisted of the following: 

 

 

 

 

 

 

 

 

 

(In thousands)

 

September 30, 2012

 

December 31, 2011

Credit facility

 

$

312,717 

 

$

324,500 

Capital lease obligations

 

 

1,661 

 

 

2,076 

 

 

 

314,378 

 

 

326,576 

 

 

 

 

 

 

 

Less:  current portion of long term debt

 

 

6,781 

 

 

2,679 

 

 

$

307,597 

 

$

323,897 

 

Credit Facility

On September 8, 2011, Lumos Networks Operating Company, a wholly-owned subsidiary of Lumos Networks, entered into a $370 million post-Business Separation credit facility (the “Credit Facility”).  Funding under the Credit Facility occurred upon the effective date of the Business Separation, which was October 31, 2011.  The Credit Facility consists of a $60 million senior secured five year revolving credit facility (the “Revolver”) of which $10

13


 

million is a swingline facility; a $110 million senior secured five year amortizing term loan (the “Term Loan A”); and a $200 million senior secured six year amortizing term loan (the “Term Loan B”).  As of September 30, 2012, there was $4.7 million outstanding under the Revolver, of which $1.7 million was in the swingline facility.  The proceeds of the Credit Facility were made available to Lumos Networks Operating Company on the effective date of the Business Separation and were used to fund a working capital cash reserve at Lumos Networks and to pay $315 million to NTELOS Inc. (i) to settle with cash the intercompany debt owed to NTELOS as of the Business Separation date ($177.1 million) and, with the balance, (ii) to fund a mandatory repayment on NTELOS’s credit facility resulting from the Business Separation.  Pricing of the Lumos Networks Operating Company credit facility is LIBOR plus 3.25% for the Revolver (and 2.25% above the Federal Funds rate for borrowings against the swingline facility) and the Term Loan A and LIBOR plus 3.50% for the Term Loan B.  The Credit Facility does not require a minimum LIBOR rate.  The Credit Facility is secured by a first priority pledge of substantially all property and assets of Lumos Networks Operating Company and all material subsidiaries, as guarantors, excluding the RLECs. 

The Credit Facility includes various restrictions and conditions, including covenants relating to leverage and interest coverage ratio requirements.  At September 30, 2012, Lumos Networks’ leverage ratio (as defined under the credit agreement) was 3.45:1.00 and its interest coverage ratio was 7.95:1.00.  The Credit Facility requires that the leverage ratio not exceed 4.00:1.00 through September 30, 2014 (and 3.75:1.00 thereafter) and the interest coverage ratio not be less than 3.25:1:00.  The Credit Facility also sets a maximum distributable amount that limits restricted payments, including the payment of dividends.  The initial distributable amount was set at $5 million at the date of funding and, on January 1, 2012, the distributable amount was increased by $12 million.  Each year thereafter the amount will be increased by the greater of $12 million or 75% of free cash flow (as defined under the credit agreement).  The distributable amount is reduced by any restricted payments including dividend payments.  The distributable amount as of September 30, 2012 was $8.1 million. 

Under the terms of the Credit Facility, the Company was required to enter into an interest rate hedge for three years on 50% of the term loans outstanding early in the first quarter of 2012.  In February 2012, the Company entered into a 3% interest rate cap through December 31, 2012 and a delayed interest rate swap agreement from December 31, 2012 through December 31, 2015 whereby the Company swaps three-month LIBOR with a fixed rate of approximately 0.8%. 

In connection with entering into the Credit Facility, the Company deferred $4.9 million in debt issuance costs which are being amortized to interest expense over the life of the debt using the effective interest method.  Amortization of these costs for the three and nine months ended September 30, 2012 was $0.2 million and $0.6 million, respectively.

The Company receives patronage credits from CoBank and certain other of the Farm Credit System lending institutions (collectively referred to as “patronage banks”) which are not reflected in the interest rates above.  The patronage banks hold a portion of the credit facility and are cooperative banks that are required to distribute their profits to their members.  Patronage credits are calculated based on the patronage banks’ ownership percentage of the credit facility and are received by the Company as either a cash distribution or as equity in the patronage banks.  The current patronage credit percentages are 65% in cash and 35% in equity.  These credits are recorded in the condensed consolidated statement of operations as an offset to interest expense.  The Patronage credits for the three and nine months ended September 30, 2012 were $0.2  million and $0.7 million, respectively.

The aggregate maturities of the Term Loan A and Term Loan B are $0.5 million in the remainder of 2012, $7.5 million in 2013, $7.5 million in 2014, $13.0 million in 2015, $90.0 million in 2016 and $189.5 million in 2017.  The revolver is payable in full in 2016.

The Company’s blended average interest rate on its long-term debt for the nine months ended September 30, 2012 was 3.79%.

Capital lease obligations

In addition to the long-term debt discussed above, the Company has entered into capital leases on vehicles with original lease terms of four to five years.  At September 30, 2012, the carrying value and accumulated depreciation of these assets was $2.5 million and $1.2 million, respectively.  In addition, the Company has $0.6 million of capital leases primarily on telephony equipment from the FiberNet acquisition.  As of September 30, 2012, the total net present value of the Company’s future minimum lease payments is $1.7 million.  As of September 30, 2012, the principal portion of these capital lease obligations is due as follows:  $0.1 million in the remainder of 2012, $0.6 million in 2013, $0.5 million in 2014, $0.3 million in 2015 and $0.2 million thereafter.

 

14


 

Note 6.  Supplementary Disclosures of Cash Flow Information 

The following information is presented as supplementary disclosures for the consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

(In thousands)

 

 

2012

 

 

2011

Cash payments for:

 

 

 

 

 

 

Interest (net of amounts capitalized)

 

$

8,604 

 

$

81 

Income taxes

 

 

1,446 

 

 

 -

Cash receipts for:

 

 

 

 

 

 

Income tax refunds

 

 

215 

 

 

 -

Supplemental investing and financing activities:

 

 

 

 

 

 

Additions to property and equipment included in accounts payable and other accrued liabilities

 

 

2,740 

 

 

1,532 

Borrowings under capital leases

 

 

166 

 

 

789 

Dividend paid through increase in borrowings from NTELOS Inc.

 

 

 -

 

 

14,145 

Dividend declared not paid

 

$

3,006 

 

$

 -

 

The amount of interest capitalized was less than $0.1 million for each of the three months and nine months ended September 30, 2012 and 2011, respectively.

 

Note 7.  Financial Instruments 

The Company is exposed to market risks with respect to certain of the financial instruments that it holds.  Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the condensed consolidated financial statements at cost which approximates fair value because of the short-term maturity of these instruments.  The fair value of the senior credit facility was estimated based on an analysis of the forward-looking interest rates as of September 30, 2012 compared to the forward-looking interest rates at inception, assuming no change in the credit profile of the Company or market demand of similar instruments.    The Company’s valuation technique for this instrument is considered to be a level three fair value measurement within the fair value hierarchy described in FASB ASC 820. The fair values of the derivative instruments (Note 5) were derived based on quoted trading prices obtained from the administrative agents as of September 30, 2012The Company’s valuation technique for these instruments is considered to be level two fair value measurements within the fair value hierarchy described in FASB ASC 820.  The fair values of other financial instruments, if applicable, are based on quoted market prices or discounted cash flows based on current market conditions.

15


 

 

The following table indicates the difference between face amount, carrying amount and fair value of the Company’s financial instruments at September 30, 2012 and December 31, 2011.  

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments

 

 

 

 

 

 

 

 

 

(In thousands)

 

Face Amount

 

Carrying Amount

 

Fair Value

September 30, 2012

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

 

$

Long-term investments for which it is not practicable to estimate fair value

 

 

N/A

 

 

382 

 

 

N/A

Financial liabilities:

 

 

 

 

 

 

 

 

 

Senior credit facility

 

 

312,717 

 

 

312,717 

 

 

321,321 

Capital lease obligations

 

 

1,661 

 

 

1,661 

 

 

1,661 

Derivatives related to debt:

 

 

 

 

 

 

 

 

 

Interest rate swap liability

 

 

154,000 

*

 

(528)

 

 

(528)

Interest rate cap asset

 

$

154,000 

*

$

 -

 

$

 -

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Financial assets :

 

 

 

 

 

 

 

 

 

Cash

 

$

10,547 

 

$

10,547 

 

$

10,547 

Long-term investments for which it is not practicable to estimate fair value

 

 

N/A

 

 

128 

 

 

N/A

Financial liabilities:

 

 

 

 

 

 

 

 

 

Senior credit facility

 

 

324,500 

 

 

324,500 

 

 

324,500 

Capital lease obligations

 

$

2,076 

 

$

2,076 

 

$

2,076 

*notional amount

Of the long-term investments for which it is not practicable to estimate fair value in the table above, $0.3 million as of September 30, 2012 and $0.1 million as of December 31, 2011 represents the Company’s investment in CoBank.  This investment is primarily related to patronage distributions of restricted equity and is a required investment related to the portion of the credit facility loan held by CoBank.  This investment is carried under the cost method.

16


 

 

Note 8.  Stockholders’ Equity 

On November 1, 2012, the Company’s board of directors declared a quarterly dividend on its common stock in the amount of $0.14 per share, which is to be paid on January 11, 2013 to stockholders of record on December 14, 2012.

The computations of basic and diluted earnings per share for the three and nine months ended September 30, 2012 are detailed in the following table.  Prior to the Business Separation, the Company did not have any common stock outstanding.

 

 

 

 

 

 

 

 

(In thousands)

 

Three Months Ended September 30, 2012

 

Nine Months Ended September 30, 2012

Numerator:

 

 

 

 

 

 

Income applicable to common shares for earnings-per-share computation

 

$

6,342 

 

$

14,404 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Total shares outstanding

 

 

21,482 

 

 

21,482 

Less:  unvested shares

 

 

(462)

 

 

(462)

Less:  effect of calculating weighted average shares

 

 

(28)

 

 

(92)

Denominator for basic earnings per common share - weighted average shares outstanding

 

 

20,992 

 

 

20,928 

Plus:  weighted average unvested shares

 

 

466 

 

 

426 

Plus:  common stock equivalents of stock options outstanding

 

 

13 

 

 

20 

Denominator for diluted earnings per common share – weighted average shares outstanding

 

 

21,471 

 

 

21,374 

 

 

 

 

 

 

 

   

For the three and nine months ended September 30, 2012, the denominator for diluted earnings per common share excludes 1,769,030 shares and 1,123,665 shares related to stock options which would be antidilutive for the period, respectively.

 

 

 

17


 

Below is a summary of the activity and status of equity as of and for the nine months ended September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

Common Shares

 

Treasury Shares

 

Common Stock

 

Additional Paid-in Capital

 

Treasury Stock

 

Accumulated Deficit

 

Accumulated Other Comprehensive Loss

 

Total Lumos Networks Corp. Stockholders' Equity

 

Noncontrolling Interests

 

Total Equity

Balance, December 31, 2011

21,235 

 

(65)

 

$

212 

 

$

126,427 

 

$

 -

 

$

(57,416)

 

$

(16,840)

 

$

52,383 

 

$

444 

 

$

52,827 

Equity-based compensation

 

 

 

 

 

 

 

 

2,270 

 

 

 

 

 

 

 

 

 

 

 

2,270 

 

 

 

 

 

2,270 

Restricted share issued, shares issued through the employee stock purchase plan, shares issued through 401(k) matching contributions and other

355 

 

(43)

 

 

 

 

844 

 

 

 

 

 

 

 

 

 

 

 

848 

 

 

 

 

 

848 

Cash dividends declared ($0.42 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,971)

 

 

 

 

 

(8,971)

 

 

 

 

 

(8,971)

Net income attributable to Lumos Networks Corp.